By now, you’ve heard about the October 4 AdWords budget change that increased daily budgets by 2x. (In fact, it’s quite possible that this is all you’ve been hearing about for the past few weeks!)
Unhappy marketers have been vocally expressing their frustration (see: Google Doubles AdWords Budgets and Advertisers are Unhappy) and dismay at a chance that will theoretically crater their return on ad spend (ROAS) as their costs potentially skyrocket.
In this column, we’ll cover:
- A high-level, executive summary of the high points (and the low points) of the change.
- Specific and actionable steps you can take today to minimize any adverse effects.
- Long-term strategies to help you survive, and even thrive, in this brave new world.
Just a reminder: This policy is already in place for every single AdWords campaign you currently manage and will manage in the future. There’s no going back.
How the 2x AdWords Budget Works
The Overview
While the spending cap for your AdWords budget used to be an additional 20 percent beyond your daily budget, it has now become 200 percent of your daily budget.
This is intended to normalize your traffic on low-traffic days.
However, it also means large spikes in traffic could deploy more of your daily budget, potentially eating through your monthly allowance, though Google claims this is unlikely and has also stated that it will refund overage charges at the end of the month.
What This Means in Practice
For example, an unexpectedly huge traffic spike for your company’s Cinco De Mayo sale may eat up so much AdWords budget early in May that you might not have enough monthly budget left for your upcoming Memorial Day sale later in the same month, at least in theory. Though, again, Google claims this is unlikely to happen.
The Good News
Campaigns that run through a full month will be capped at the overall monthly limit – your daily budget multiplied by 30.4 (the length of an “average” month).
You’ll be credited for any over-delivery charges at month’s end.
What This Means in Practice
Your longer-dated (31 days and longer) campaigns will not run over to 2x spend levels, as long as you’re ready to make the commitment to lock them in, launch them, and not make any significant changes once they’re in flight.
The Immediate Bad News
Campaigns that don’t run for a full month, or change end dates/delivery modes/budgets/time zones midstream will have their AdWords budget cap readjusted.
What This Means in Practice
This means that for longer-dated campaigns (set at 30 days or longer), budget changes made midstream will see readjusted budgets based on the new budget and the remainder of the campaign length. Example: For a 30-day campaign whose budget is changed on day 15, the remaining 15 days of the campaign will be capped at a budget of 15 remaining days multiplied by that new daily budget.
This also means that shorter-dated campaigns that run less than 30 days may potentially run into expensive overage charges with unexpected traffic spikes. I expect most SEM professionals see this limitation as a serious problem for campaign testing (a mission-critical business practice).
For instance, apparel merchants that are accustomed to running short-term tests to see which brand-new products in next year’s clothing line bring in the most clicks may unexpectedly take a bath due to traffic spikes, particularly if they find themselves in a stop-start cadence as they tweak ad copy, product groups, and so on.
Multiple short-term tests during busy seasons could unfortunately add up, since, as mentioned, the effective AdWords 2x budget cap resets with each short-term campaign.
Retailers may want to think twice before running multiple tests during high-traffic periods like Cyber Week!
Another big threat here seems to be merchants that run short-term flash sales around high-volume holidays (such as Black Friday, Cyber Monday, and Valentine’s Day).
Again, unexpected traffic spikes could cost you dearly.
The Long-Term Problem
One of the most obvious threats here is that this change gobbles up your AdWords budget prematurely due to a spiky traffic day earlier in your campaign.
Google’s logic is that this is a good thing since you will have hit your conversion and revenue targets – but you will have done so more quickly than you otherwise would have.
This also means you end up with remaining flight dates on your campaign where your ads don’t even show up.
What This Means in Practice
The long-term downside is that if your AdWords budget is all gone by Week 1 of a three-week campaign, all the traffic, conversions, and revenue you might have gotten in Weeks 2 and 3 never happens.
All those searchers and shoppers with whom you could have made inroads, and turned into lifelong customers, by reaching them with your ads during Week 2 and 3? Because your campaign already ran out of budget, your ads don’t run, and they never even see you.
The long-term opportunity cost here is potentially colossal.
How to Proceed Today with Your AdWords Budget
Here are some tips to ensure you don’t prematurely burn through your AdWords budget early, so you can (should you need to) continue to run them after spiky traffic days to capture the additional conversions and revenue.
Monitor Budgets & Traffic Carefully
I realize this a blindingly obvious suggestion, but it’s so important that it bears mentioning.
For your paid search campaigns – particularly those running less than 30 days or for which you plan to make stop-start changes – monitor traffic and spend on your AdWords budget carefully, especially as you approach seasonally high-traffic periods.
Consider Throttling Spend
For shorter-term campaigns (or campaigns you’ll need to change mid-stream) that will definitely run during seasonably high-traffic or spiky periods, consider throttling your budgets before even setting your campaigns live.
Advertisers on extremely strict budgets may want to proactively reduce their daily budgets to as low as 50 percent of their original levels.
This ensures that even if, worst case, your campaign spend does hit the new 2x AdWords budget cap, you aren’t spending any more than your original budget.
Plan Ahead
This change means that knowing your business’s seasonally high-traffic periods in advance is even more important for budget planning.
If you run a travel operation that sees its highest traffic in the first half of the year, plan to front-load your AdWords budget for those calendar months.
If you run a specialty retail operation, such as a florist or candy supplier, plan to purposely expand (or throttle) your budgets, especially for worst-case scenarios, around your biggest holiday rush days (Valentine’s, Mother’s Day, and so on).
How to Proceed in the Future with Your AdWords Budget
Longer-term, there are strategic options you may want to consider.
Collect Historical Data for Important Insights
In my view, this AdWords budget change really emphasizes the importance of learning from historical data.
The budget change will potentially make repeated testing significantly more expensive, so the more you can learn from previously-observed data and put into practice, the better.
Sure, “buying the data” is a standard practice in SEM, but this change may have made it significantly more expensive.
Having a more data-driven approach to campaign planning means you’ll be able to more-accurately forecast spend for busy periods and expand your budgets (or throttle them) as necessary.
Consider LTV Models
Lifetime value (LTV) models the total expected profit from individual customers across your entire relationship with them. Having fully calculated customer LTV helps you clearly forecast budgets for ongoing campaigns down to the individual user.
I expect LTV will become significantly more important in the future as more advertisers get granular about their data surrounding traffic, conversions, and AdWords budgets.
Going into a busy, high-traffic season where your daily spend could balloon to double your normal budget, if you could either have:
- An accurate, data-based gauge of seasonal traffic and a defined LTV for each user to help you calculate a precise budget that wastes little to no spend without missing opportunities.
- Gut feelings, guesswork, and “hope.”
Well, I know what I’d choose.
NLP to Build Data Scarcity Models
This is a highly advanced one, but there are sophisticated SEM solutions out there that mitigate data scarcity with advanced technology.
A common approach to managing data-scarce keywords, like long-tail, is “buying the data” for a few weeks (or months) until you can extrapolate reasonable bid levels.
However, some solutions actually use natural language processing (NLP) and semantic distance modeling to create highly accurate bid landscape models based on semantically similar keyword groups.
Being able to cut straight to the chase and immediately bid with confidence on data-scarce keywords and realize strong ROAS is infinitely preferable to buying the data, especially with the new Google change.
Investigate solutions that offer this feature.
Takeaways
Hopefully, you’ve come away with a clearer picture of the AdWords budget change, some specific steps you can take to preserve your budgets and your performance and some longer-term strategies to consider for the future.
Good luck, and stay sharp!
More Google AdWords Resources Here:
- 6 Things That Will Save Your Underperforming AdWords Campaign
- 7 Strategies for Improving AdWords E-Commerce Performance
- Why Google AdWords Isn’t Working for You
Image Credits
Featured Image: Unsplash
